Page 167 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes 9.2 Nature and Scope of Management Accounting

The scope of management accounting is broader which draws concept and applications from
various disciplines. The two major dominant forces of management accounting are fi nancial
accounting and cost accounting.

1. Financial Accounting: It is a traditional method of accounting that supplies historical
information about the firm during the past. Whatever information extracted is being utilized

for the constructive future policies and financial forecasting of the firm. For example, from

the yesteryear financial statements, the firm could plan the volume of sales, volume of

purchases, size of the debtors, creditors, stock of the firm, cash required by the fi rm on

everyday to meet financial commitments and so on.
2. Cost Accounting: It is another important process of accounting which affords the cost
information of either product or service of the firm and analyses and interprets them

through various tools viz marginal costing, standard costing, process costing, unit costing,
batch costing and so on, for the formulation of policies and assist the firm to carry out the

operations of the undertaking.
3. Statistical Methods: It is another component of management accounting which plays a
pivotal role in presentation of information through charts, diagrams etc. by the various
departments.
4. Operations Research: It is an inevitable tool complementing the management accounting
in deriving rational decisions through decision tree analysis and so on.

Functions of Management Accounting

Extraction of Data From the financial statements

Classification, Modification, Modification of Data
Compilation of Data

Analysis and Interpretation of Data Decisions are made

Management Accounting
Information system Communication of Results

Facilitation of Control Through the comparison of
actual and standard

Credit policy, changes in fashion are taken as
the base for decisions Utilisation of qualitative information

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